SIC 4225
GENERAL WAREHOUSING AND STORAGE



This category includes establishments primarily engaged in the warehousing and storage of a general line of goods. The warehousing of goods at foreign trade zones is discussed under SIC 4226: Special Warehousing and Storage, Not Elsewhere Classified. Field warehousing is found under SIC 7389: Business Services, Not Elsewhere Classified.

NAICS Code(s)

493110 (General Warehousing and Storage Facilities)

531130 (Miniwarehouses and Self Storage Units)

Industry Snapshot

At the turn of the century there were over 7,100 warehouse establishments operating in the United States, according to the U.S. Census Bureau's Statistical Abstract of the United States. The industry generated $12.8 billion in revenues in 2000. Of that total, general warehousing accounted for $7 billion; refrigerated warehousing and storage, $2.5 billion; and all other warehousing and storage, $3.3 billion.

Operating between shippers and carriers, companies engaged in the general warehousing business were third parties in the transportation industry. These businesses provide a variety of transportation and distribution services in addition to storage. As the industry entered the new millennium, large general warehousing companies offered value-added services ranging from customer billing to salvage and scrap disposal, and were marketing themselves as logistics services providers rather than as storage companies. Logistics, a term the transportation industry borrowed from the military, refers to all phases of the distribution process. Logistics-related services were provided by various industries including public warehouses, parcel express, and freight transport.

Organization and Structure

General warehousing companies received and shipped goods on behalf of their customers, serving as middlemen in the transportation process and a vital part of the logistics business. Although some of the large general warehousing companies, such as GATX Logistics, Inc. and DMSI, Inc., of Charlotte, North Carolina, operated their own trucking fleets, normally an independent carrier was used to transport the goods. The carrier was chosen either by the customer or by the warehouse operator who then acted as the customer's agent.

Like most transportation-related businesses, the general warehouse industry was well organized on a national level. Four trade associations, Affiliated Warehouse Companies, Allied Distribution, American Chain of Warehouses, and American Warehouse Association, founded in 1953, 1933, 1911, and 1891, respectively, maintained national networks for marketing, sales, and industry lobbying. Because this industry operated between the vast manufacturing industry and the powerful transport industry, national organization was critical to the preservation of its own interests.

Competitive Structure. Although eight multi-regional companies dominated the general warehousing business, dozens of medium and small companies operated throughout the country. Entry into this industry was relatively easy for businesses proposing to operate locally; expanding demand and low start-up costs encouraged new entrants. In fact, from 1988 to 1993 the number of firms in the industry nearly tripled. Entering the mid-1990s warehouse expenditures were declining due to lowered costs of data processing equipment, furniture, and overhead labor. Self-storage companies found the conditions particularly inviting. Public and contract warehouse operators involved in logistics, however, faced an increasingly competitive environment in which service and technology were critical to success.

Although expanding demand and relatively low barriers to entry encouraged new entrants, competition for national market share was strong. Once a shipper chose a warehouse operator, especially one that offered logistics support, a strong relationship developed, and the cost of switching to another warehouse operator was high. Expanding market share, therefore, was difficult. The largest firms faced competition from national trucking companies and specialized distribution services in the logistics sector. In the warehouse sector, these companies competed with manufacturers' in-house storage operations. To gain market share, the national operators invested heavily in technology to differentiate their services.

Background and Development

General warehouses have operated in the United States since colonial days. Located in major ports such as Boston, these early warehouses were used as repositories for goods being shipped to and from England. These warehouses served as temporary housing for the exports of raw materials, such as cotton, and imports such as finished goods like textiles.

It was not until the completion of the railroad trunk lines around 1860 that warehouses began to move from the port cities into the nation's interior. During this time, industry was developing in the northeastern states, and the western farmlands were producing corn and wheat for consumption in the east and for export.

General warehouses grew with the nation's economy. As production techniques became more efficient, finished goods were produced faster, allowing manufacturers to develop inventories that required storage. Manufacturers that could not afford to maintain a warehouse paid a public warehouse operator to store finished products and raw materials. Often, manufacturers would ship their products to and from warehouses at major railroad terminals.

From its inception, the primary function of the general warehouse industry was storage. During the twentieth century, however, the transportation industry became more complex. Manufacturers faced several regulations regarding interstate shipping and had to choose between hundreds of transport companies in the truck, rail, and airfreight transport business. Moreover, the deregulation of trucking in the early 1980s caused an explosion in the number of companies providing truck services. As the transportation landscape became more difficult to navigate, shippers turned to warehouse operators for more services including the arrangement of freight distribution.

The increased reliance on warehouse operators for services other than storage prompted some warehouses to diversify into different transportation areas. After deregulation of the truck business, for example, some warehouses operated private trucking fleets used for distribution. Others became involved in combining small shipments of freight from various shippers into truckload shipments. These types of services were more typical of freight forwarders or transport companies than of general warehouse operators. At the same time, however, freight forwarders and truckers were offering storage services in addition to their primary functions.

Such overlap in services resulted in the emergence of the logistics industry. In fact, the various industries already providing logistics-related services were involved in a cooperative marketing campaign called "Think Logistics." The marketing effort was developed in the wake of research indicating that, according to Michael Jenkins, president of the American Warehouse Association, the "traditional lines between freight transportation and warehousing, or brokerage and warehousing, or even manufacturing and warehousing were beginning to blur." By the mid-1990s, many warehouse operators had developed from temporary caretakers of raw materials and finished goods into logistics experts.

The precarious position of the general warehouse operator, between shippers and carriers, was illustrated in the legislative battle over "carrier undercharge." Carrier undercharge occurred when truck companies quoted shippers lower freight rates than were prescribed by the various rate bureaus throughout the country and then failed to file the discounted tariffs with the rate bureaus. An undercharge crisis occurred in the early 1990s when many truck companies went bankrupt. During the reorganization or failure of these truck companies, it became clear that some carriers had charged rates that did not match those on file at the Interstate Commerce Commission (ICC). In the wake of these discoveries, shippers were receiving bills for "carrier undercharge" from the trustees of the bankrupt truck companies. Often the undercharge bill arrived months or years after the freight was shipped.

By 1992, undercharge claims exceeded $30 billion. In cases in which warehouse operators arranged the transportation of a manufacturer's goods, the warehouse operator received the undercharge bill. At this point, the warehouse operator had to either risk sabotaging a business relationship by trying to recover the undercharge costs from the true shipper, his client, or pay the bill himself.

The undercharge debate raged in Congress for years. In 1993, Congress passed the Negotiated Rates Act, legislation that set procedures for resolving claims involving unfiled, negotiated transportation rates. The legislation favored shipper interests and included a subsection allowing the public warehouse to settle for 5 percent of the claim, with any disputes settled by the ICC.

The fact that the public warehouse industry was mentioned specifically in this legislation attested to its lobbying skills and highlighted the industry's ability to defend its interests. Had this legislation not been passed, warehouses were in a position to lose millions of dollars in undercharge payments and court battles related to the payments.

In the mid-1990s, co-ops become the latest trend among suppliers and distributors, as companies combined their resources into one network to take advantage of economies in transportation and warehousing. Most of their arrangements were made by suppliers or shippers through third parties. These types of arrangements benefited companies by reducing inventories, extending buying power, saving costs, improving service, and producing less paperwork.

The general warehousing industry was the beneficiary of corporate America's strategic responses to the 1989-90 recession. Corporate downsizing, inventory management, and increased customer service all became important competitive priorities as manufacturers struggled to turn a profit in a weak economy. General warehouse operators provided the services necessary for companies to employ these strategies.

Corporate Downsizing. Faced with an increasingly competitive business environment and a weak economy, many large corporations underwent major downsizing during the early 1990s. As a result, operations not related to the core business of the corporation were eliminated. Often, these operations were connected with in-house storage and distribution. Many large manufacturing companies such as Eveready Battery Corp. considered public warehousing to be a cheaper and more efficient alternative to operating company-owned warehouses. Eveready switched to 100 percent public warehousing in the early 1990s; as a result, in 1992 Eveready estimated that it saved $2.1 million, at a cost of $1.4 million.

Mothercare, a 200-store maternity retailer, also switched from private to public warehousing during the early 1990s. Mothercare hired DMSI to handle its logistics, from arranging transportation into DMSI warehouses to distributing merchandise by means of the DMSI fleet. In New Jersey, general warehouse storage was booming in 1999, with more than 60,000 people employed in the industry in that state. Volkswagen, Barnes & Noble, Tommy Hilfiger, and Howmedica all had built distribution centers in New Jersey in the latter 1990s.

Also affecting the evolution: increased competition from alternative formats, such as mass merchandisers and warehouse clubs, caused food distributors to rethink and reengineer their distribution strategies. For Fleming Companies, of Oklahoma City, Oklahoma, the nation's largest supermarket distributor, this meant fundamentally reinventing its business. For years, Fleming had served as the "middle man" between product manufacturers and grocery store retailers. By 1996, it operated as a major distributor and supplier of virtually every national brand and high-volume private label, as well as a variety of general merchandise and full lines of perishables, including meats, dairy and delicatessen products, frozen foods, and fresh produce. By incorporating "Efficient Consumer Response" (ECR), Fleming repositioned itself as a value-added marketing and distribution company providing goods and services. ECR made it possible for customers to pick and choose which services they wanted and pay for only those used. In 1996, Fleming's sales topped $17 billion. That same year, Fleming had 41 supply centers nationwide, and 44,000 employees servicing more than 3,500 supermarkets in 42 states, the District of Columbia, and several foreign countries. It operated approximately 370 company-owned stores.

Inventory Management. In addition to corporate downsizing, American businesses were eager to increase inventory turnover as a means of streamlining operations. As a result, Just-in-Time (JIT) inventory management was being used by more companies than ever before. In fact, logistics expert Robert V. Delaney of Cass Logistics estimated that by 2000 close to 40 percent of U.S. products would be shipped on a time-based standard, and that most deliveries from warehouses would be completed in 37 hours or less.

However, the successful execution of JIT required constant monitoring of inventory levels and flexibility on the part of shippers. JIT generally required more frequent, but smaller shipments of goods to and from warehouses. Public and contract warehouses were often better equipped than in-house warehouses to execute time-based inventory management. A critical advantage held by public warehouses was their ability to create economies of scale in distribution. In 1992, public contract warehouses shipped nearly two trillion pounds of product from their warehouses. With this volume, the warehouses often had more leverage than a small manufacturer with suppliers and carriers. The warehouse operator, therefore, could dictate the size and frequency of the shipment to meet JIT inventory requirements.

Furthermore, public warehouses could dedicate more resources to inventory management than would be efficient for some manufacturers. Expensive technology such as Electronic Data Interchange (EDI), bar coding, radio-frequency technology, scanners and specialized logistics software was critical to the successful implementation of JIT and prohibitively costly to some companies. Public warehouses, however, were able to spread the cost of this technology over many customers. By 1996, transport and logistics industries had become the world leaders in the use of advanced technologies such as EDI. USCO Distribution Services, of Naugatuck, Connecticut, for example, repaired personal computers, printers, and monitors for IBM. Some companies stated that they used public warehouses for service rather than storage.

The 1999 Annual Report published by Logistics Management & Distribution confirmed the shift to fewer but larger warehouse facilities. Warehousing costs, as a percentage of sales, rose 3.72 percent between 1997 and 1998. To compensate, warehouses began adding assembly, prepackaging and special labeling "value-added services" for their customers.

Respondents to a 1998 WERC member survey indicated that companies had decreased the number of warehouses in their networks by more than 2.5 percent for 1998 and expected to do the same in 1999. Manufacturing companies led the greatest decline, projecting a 23 percent decrease in the number of warehouses used (wholesalers predicted a slight increase).

New facilities in 1999 were estimated at 40 to 80 percent larger than existing warehouses. While this was expected to contain some of the rising costs, other factors could not be controlled. According to the 600-member International Warehouse Logistics Association (IWLA), labor, information technology, and ISO 9000 certification compliance remained key budget expenses at the end of the 1990s.

Current Conditions

Far from becoming obsolete as once predicted, warehousing has found its niche in the twenty-first century. By becoming more responsive and attune to customers' needs, warehousing has remained an integral part of materials management. In fact, at the beginning of the twenty-first century warehouse construction was one of busiest segments of new construction in the United States. Warehouses are growing in size and their roles are changing. Cindy Dubin noted in Food Logistics, "As the supply chain evolves, so does the warehouse. With the new demands placed on warehousing, there's one certainty: The warehouse won't exist just to store inventory." Companies are beginning to move such duties as light manufacturing and returns management to warehouse sites.

Trends that will likely dominate the way warehouses structure their businesses in the twenty-first century include compression of time and operations, increased automation, continuous flow, and customized warehousing. Compression of time and operations focuses on quick response and efficiency. As warehouses become bigger but fewer, more orders will be filled on a daily basis, requiring a flawless materials management and tracking system. Although widespread use of advanced automation, such as robotics, remains for the future, increased automation, including an effective conveyor belt system, will allow warehouses to better manage labor costs. Continuous flow offers customers smaller, more frequent shipments. What was once supplied quarterly or monthly will increasingly be shipped out weekly or even daily, allowing retailers to keep inventory costs low but also keep shelves stocked and rapidly restocked. Customized warehousing involves meeting specific and unique customer needs for such services as labeling and ticketing to process floor-ready merchandise.

Industry Leaders

The top 2000 general warehouse contractors (by square foot of warehouse space) were: Exel plc (29.5 million square feet); GATX Logistics (22 million); Tibbet & Britten (15.1 million); the Kenco Group (13.1 million); and USCO Logistics (12 million); and DSC Logistics (11.8 million).

Research and Technology

Employing the latest standards in shipping and warehouse technology was an industry standard for general warehouse operators. Because so many of the companies marketed themselves as logistics experts and as purveyors of value-added services, having the latest technological innovations was necessary to meet customer expectations. Within the warehouse industry itself, moreover, flexibility and efficiency were necessary to the survival of a firm. Technology enabled businesses to maintain levels of productivity.

One type of technology that saw rapid acceptance throughout the transportation industry was electronic data interchange (EDI). Allowing shipper and receivers to transmit invoices electronically, this mainframe computer system greatly reduced the routine paperwork associated with distribution. EDI was used by many large companies throughout the nation, putting pressure on general warehouse operators to install the system if they wanted to do business with these large companies.

In addition to EDI, general warehouses used electronic devices such as bar coding and radio frequency monitoring. These innovations enhanced the productivity and efficiency of warehouse operations and simplified inventory tracking. As customer expectations became more stringent and competition in the general warehouse industry increased, more warehouses were forced to invest in technology to remain contenders.

Improved technology appeared to contribute to the growth of the general warehousing industry. As traditional in-house storage and management facilities became obsolete, and the cost of upgrading outweighed the benefits of maintaining the facility, manufacturers looked to general warehouses to provide the high-tech warehousing facilities necessary for survival.

Further Reading

"2002 North America's Top 20 Refrigerated Warehouse and Distribution Companies." Frozen Food Digest, February-March 2002, 47.

Aichlmayr, Mary. "Making a Case for Automation." Transportation & Distribution, June 2001, 85.

"Avante Garde: GATX Distributes Mexico." Export Today, August 1999.

"Bigger and Better." Manufacturing Systems, December 2000, S115.

Bronstad. "GATX Adding 250,000 SF to GSWID Space." Business Press, 24 September 1999.

Cook, Dan. "Today's Distribution Centers: Bigger, Taller, Faster." Dallas Business Journal, 29 June 2001, 18C.

Dubin, Cindy H. "Building on a Strong Foundation." Food Logistics, 15 October 2000, 47.

Finkelstein, Brad. "Expert Says that Demand Outpaces Line Availability." Origination News, January 2002, 32.

"GATX Opens Facility." The Business Journal of Jacksonville, Florida, 19 November 1999.

Hurdock, Brian. "Ten 21st Century Warehouse Trends." DSN Retailing Today, 7 August 2000, 14.

"Logistics Focus Group Identifies Drivers That Help Build Inventory." Inventory Management Report, August 2002, 2.

"Services to the Industry." Chemical Week, 27 October 1999.

Teichgraeber, Tara. "Warehousing Might be Greatly Altered by E-Commerce." Sacramento Business Journal, 16 June 2000, 36.

"Top Five Warehousing Trends for 2001." Modern Materials Handling, February 2001, 27.

U.S. Census Bureau. Statistical Abstract of the United States:2002. Available from http://www.census.gov .

"Warehousing: Costs Are Rising." Logistics Management & Distribution, July 1999.

"Warehousing is Location, Location, Location." Logistics Management & Distribution, July 1999.



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